Posts Tagged ‘European Debt Crisis’

Via ZeroHedge comes renewed information of a point I’ve hit home again and again: Thogh Greece is an extreme outlier on unsustainable welfare state spending in Europe, it’s also the canary in the coal mine, as toxic debt continues to rise all across Europe, with several countries exceeding a debt-to-GDP ratios of over 100%, including “Greece (168.8%), Italy (135.1%) and Portugal (129.6%).” Post-bailout (and bail-in) Cyprus is still over 100% as well, as is Ireland, though Eurostat didn’t have Irish DGP numbers, though supposedly the ratio should be trending down. And Spain and France are hovering just under 100%.

To my mind the great mystery is how Belgium’s debt-to-GDP ratio now tops 111% with such a fat cushion of Brussels Eurocrats to sit on.

The problem is not Greece’s only. The problem is that the western liberal welfare state, as currently constituted, is economically and demographically unsustainable.

I’m sure I’ve driven this point home to regular readers of this blog, but I’ll continue driving it home until our leadership class is actually willing to do something about it…

The self-inflicted destruction of Greece has been accomplished, but they’re still going to be picking up the pieces for years, if not decades. And there’s no guarantee the heavy manners Germany and the troika are imposing will actually be enough to rescue it.

So, enjoy a random collection of Greek headlines, since I don’t quite have time to pen a piece on The Greater Meaning Of It All:

Stratfor says that the Greek referendum backed Germany into a corner, and forced them to come down twice as hard. “The leading power of Europe will not underwrite defaulting debtors. It will demand political submission for what help is given. This is not a message that will be lost in Europe, whatever the anti-Greek feeling is now.”

Former Greek finance minister Yanis Varoufakis is not at all happy, saying the agreement makes Greece a “vassal of the Eurogroup.” Hey Yanis: You and the rest of the Greek ruling class are the one who baked the gypsy pie with your reckless spending to prop up your bloated welfare state. You’re just upset that Greeks, not Germans, are the ones having to eat it…

Many observers are wondering how the left-populist renegades of Greece’s Syriza party, which rose to power in January on the promise of delivering relief from austerity and renewed its mandate with a massive victory in the July 5 referendum, managed to negotiate a bailout deal on Monday that is substantially worse than what was available to Greece before Syriza took office.

That would be because they were idiots who lied to voters about what they could accomplish.

For those who missed today’s festivities in Brussels, here is the 30,000 foot summary: Europe has given Greece a “choice”: hand over sovereignty to Germany Europe or undergo a 5 year Grexit “time out”, which is a polite euphemism for get the hell out.

As noted earlier, here are the 12 conditions laid out as a result of the latest Eurogroup meeting, which are far more draconian than anything presented to Greece yet and which effectively require that Greece cede sovereignty to Europe, this time even without the implementation of a technocratic government.

Return of the Troika to Athens (the paper calls them the institutions… for now)

Greece must also hand over €50 billion in assets to an escrow fund it can’t control.

Just think: If Tsipras hadn’t been such an ass, Greece could have reached a far-less onerous deal to continue the farce another year or so, and probably before their banks started running out of money.

It seems that Yanis Varoufakis’ ideas about game theory don’t work when one side holds all the cards and the other is dead broke. Who knew?

It looks like we have an actual, honest-to-God compromise, in that Greece, in exchange for not having their economy collapse and descend into anarchy and cannibalism, will pretend to implement real reforms, while the Troika, in exchange for those promises, and not being blamed for the impending global recession, will give Greece still more loans, write down some previous loans, and pretend this actually fixes the problem.

A cursory look at the “new” Greek proposal to creditors suggests PM Alexis Tsipras may have sold out the referendum “no” vote in a final, desperate attempt to avert an economic catastrophe and the collapse of the country’s banks which will be cut off from ELA as of Monday morning in the event Brussels and Athens do not come to terms over the weekend.

And indeed, the austerity outlined in the latest proposal is more severe than the version voters rejected last Sunday. Among the proposals evidently agreed to: No retirement until age 67 or 40 years of paying into the system. Caveat: Pension reforms don’t actually kick in until October, so they’re still kicking the can down the road on that as well.

The problem with holding a gun to your own head is, sooner or later, someone is going to call your bluff.

EU leaders have given Greece until Sunday to “Reach a new bailout agreement with its creditors” or “face bankruptcy and expulsion from the euro currency system.”

The European Central Bank also hiked Greek ELA Haircuts. Translation: Hope you enjoy the scent of burning bridges, Greece, because now your banking system is even more screwed than before the referendum. (Note: Zero Hedge is down as of this posting. Maybe China got tired of him exposing their financial house of cards…)

And Greece’s leftist PM Alexis Tsipras is still playing his old tricks. “Screw all of you! You suck! Oh, and here’s a new proposal for a bailout that doesn’t meet any of your conditions! Please give us money! Pretty please! Screw all of you!”

“The Greek people spent part of the weekend in the streets celebrating their status as international deadbeat. They spent the rest of the weekend hoarding food, fuel, and medicine in preparation for the manmade disaster they have inflicted upon themselves.”

Also: “The Greeks may have burned their bridge to Europe, but the Germans are roasting marshmallows over the flames.”

Further:

The presence of Greece in the Eurozone is the result of a lie: The Greeks pretended to get their deficits and debt under control, and the Europeans pretended to believe them. That was the first act. In the second act, after the advent of the current crisis, the Greeks pretended to enact fiscal reforms, and the Europeans pretended to believe them. Political logic is, not coincidentally, lawyer logic — which is to say, it substitutes consensus for reality. If enough people (jurors, voters) are convinced that your position is the correct one, then you “win.” Maybe the election turns out your way, as with Tsipras and the referendum. Maybe political consensus prevents your opponents from enacting their favored policies, just as conservatives have for decades been frustrated in their efforts to enact entitlement reform by cheap and dishonest images of grandmothers being pushed over cliffs. Maybe O. J. Simpson walks.

Since Obama took office, it’s been fashionable to quote Mrs. Thatcher’s great line: “The problem with socialism is that eventually you run out of other people’s money.” But we’re way beyond that. That’s a droll quip when you’re on mid-20th-century European fertility rates, but we’ve advanced to the next stage: We’ve run out of other people, period. Hyper-rationalist technocrats introduced at remarkable speed a range of transformative innovations — welfare, feminism, mass college education, abortion — whose cumulative effect a few decades on is that the developed world has developed to breaking point: Not enough people do not enough work for not enough of their lives. In the course of so doing, they have fewer children later. And the few they do have leave childhood ever later — Obamacare’s much heralded “right” for a 26-year old to remain on his parents’ health insurance being merely a belated attempt to catch up with the Europeans, and one sure to be bid up further.

A society of 25-year-old “children” whiling away the years till early middle age in desultory pseudo-education has no desire to fund its prolonged adolescence by any kind of physical labor, so huge numbers of unskilled Third World immigrants from the swollen favelas of Latin America or (in Europe) the shanty megalopolises of the Muslim world are imported to cook, clean, wash, build, do. On the Continent, the shifting rationale for mass immigration may not illuminate much about the immigrants but it certainly tells you something about the natives: Originally, European leaders said, we needed immigrants to work in the mills and factories. But the mills and factories closed. So the new rationale was that we needed young immigrants to keep the welfare state solvent. But in Germany the Turks retire even younger than the Krauts do, and in France 65 percent of imams are on the dole. So the surviving rationale is that a dependence on mass immigration is not a structural flaw but a sign of moral virtue. The evolving justification for post-war immigration policy — from manufacturing to welfare to moral narcissism — is itself a perfect shorthand for Western decay.

A member of the European Central Bank’s governing council says “Greek debt held by the European Central Bank can’t be restructured as doing so would contravene the eurozone’s founding treaties.”

And if Greece won’t be forced to pay its debts, voters in Spain, Portugal and Italy will start to wonder why they should pay theirs.

But without additional loans, things in Greece are going to get very bad indeed. How bad? Greek banks are drafting plans to confiscate 30% of bank deposits over €8,000. Greece’s middle class has spent they last decade enjoying spending other people’s money, only to wake up and find that they are now Other People.

Greece’s leftwing Prime Minister Alexis Tsipras wants more negotiations. Because, you know, Europe just hasn’t had enough of those over Greek debt.

Mr. Tsipras said Greece was “prepared to accept” a deal set out publicly over the weekend by the creditors, with small modifications to some of the central points of contention: pension cuts and tax increases.

Greece lost its financial lifelines Tuesday, as the country missed a crucial payment to the International Monetary Fund amid growing questions about whether it would be able to remain in the euro zone.

Greek leaders had made a last-ditch attempt to come up with the necessary cash, asking European countries for a new bailout hours before its last ones were set to expire, but E.U. finance ministers rejected the request as unrealistic. The missed payment, confirmed by the IMF, was a landmark moment in Europe’s five-year battle to preserve its common currency.

The bureaucrats in Brussels and their counterparts in Europe’s national governments are furious with the Greeks for daring to consult their own people. Daniel Hannan, a British member of the European parliament, sarcastically tweeted, “Calling a referendum is, to Eurocrats, the most offensive thing a politician can do.” Stripped of their veneer, Eucrocrats’ arguments against all referendums amount to saying that referendums are a bad idea because they shift power from small cliques of unelected but wise rulers to an unsophisticated, nationalistic mob that might fall prey to populism

Today is the day Greece defaults: “Greek Finance Minister Yanis Varoufakis confirms Greece will not pay the International Monetary Fund debt due today. The European part of Greece’s international bailout expires Tuesday and with it any possible access to the remaining rescue loans that it needs to pay its debts of about $1.9 billion to the IMF.”

And what happens after Greece defaults to the IMF? That’s when things get interesting. First, on Sunday, July 5, the Greek people vote on a badly worded referendum. If they agree to Europe’s terms, they’ll impose additional budget-cutting measures and pension reform, and presumably get a new loan to pay their IMF arrears.

And if they vote no? Then they’ll have no euros to keep paying for their welfare state, and presumably start printing drachmas. But their debt stays denominated in euros, and there’s no guarantee foreign companies will be willing to deal in drachmas instead of euros, or that European foreign exchanges will even allow drachmas to be traded until Greece comes to some sort of agreement with the European Central Bank and other creditors. (I am largely ignorant of European foreign exchange regulations.) Either way, expect a nice dose of hyperinflation to add to Greece’s myriad coming economic woes.

The Eurozone is far more likely to survive Greece’s exit than Greece is. Then again, Greece now has so much debt that it’s screwed no matter what happens. Deficit financing to prop up your bloated welfare state is a horrific idea that destroys economies, and Greece looks to follow Venezuela in providing this generation’s example.

Other Greek tidbits:

Tsipras “thinks Greek voters, by making delusional promises to themselves, obligate other European taxpayers to fund them.” More: “Since joining the Eurozone in 2001, Greece has borrowed a sum 1.7 times its 2013 GDP. Its 25 percent unemployment (50 percent among young workers) results from a 25 percent shrinkage of GDP.” Gee, you can’t borrow your way to prosperity? Who knew?

Greece actually needs €275 billion to pay its debts between now and 2057.

Looks like that optimism over Greece caving in to reality was a bit premature, since Alexis Tsipras is back to his old tricks again, proclaiming loudly that he won’t be “blackmailed.” Because we all know that agreeing to cuts in your bloated welfare state to pay for the loans you already agreed to is “blackmail.”

He’s called for a national referendum on bailout agreement terms. The problem is, that vote is July 5 while $1.7 billion payment Greece owes the IMF is due June 30, and the IMF can’t offer extensions, and Greece is too broke to make its debt payment.

The bill for Greece’s profligate spending and fake austerity was always going to come due sooner or later. Tsipras’s disasterous term in office merely ensured that it would come sooner and with a maximum of economic pain for the Greek people…